mergers & acquisitions section 1b: shareholder voting prof. amitai aviram [email protected]...

Mergers & acquisitionsSection 1b:

Shareholder votingProf. Amitai [email protected]

University of Illinois College of LawCopyright © Amitai Aviram. All Rights Reserved

S15

Shareholder votingOverview of Section 1b

1. Mechanics of SH voting– Call– Quorum– Vote– Special rules for certain types of votes

2. Proxy solicitation3. Controlling the agenda

© Amitai Aviram. All rights reserved.2

Mechanics of SH votingHow do SHs act for the corporation?

• Like other corporate organs, SHs act by approving resolutions:– Written consent; or– Meeting

• Call (summoning the meeting)• Quorum (sufficient shares present at the meeting)• Vote (sufficient shares support the resolution)

• Hypo– A majority of Acme’s SHs want to appoint Ella as director– Oliver the objector disagrees, and wants to speak at a SH meeting to persuade

his fellow SHs not to vote for Ella– He argues that Acme must hold a physical meeting to debate & vote– Other SHs don’t want to waste time & money on a meeting– Can Acme appoint Ella without a SH meeting? [DGCL §211(b), 228(a)]


Call

• Types of SH meetings– Annual SH meeting [DGCL §211(b)]: unless it elects directors by written

consent, firm must hold an annual SH meeting– Special SH meetings [§211(d)]: any meeting other than the annual SH meeting

(the law allows but does not require calling such meetings)• When are special SH meetings called?

• The ‘call’ element considers two issues– Who has authority to call a SH meeting?– What is required for the notice to be appropriate?

• Authority to call a SH meeting– As stated in bylaws [DGCL §211(b)]– Court, if no meeting was called for 13 months [§211(c)]– For special meeting: board + as stated in bylaws/charter [§211(d)]


CallAppropriate notice

• DGCL §222(a): Notice must be in writing and specify– Place of meeting

• DGCL §211(a)(1): By default, place provided in charter or bylaws; if no such place is specified, meetings held in location determined by board

• What if board, not wanting a particular SH to attend, decides to hold the meeting on a corporate jet during flight (knowing SH is afraid of flying)?

– Date & hour of meeting– Means of remote communications, if any– For special SH meetings: purposes for which the meeting is called

• DGCL §222(b): notice must be given no less than 10 days or more than 60 days before the meeting


QuorumWere enough SHs present?

• The ‘quorum’ element considers whether enough shares were present to consider the event a valid meeting– What’s wrong with having only a few votes present?

• How many shares must be present?– DGCL §216(1): by default, majority of shares entitled to vote– Charter/bylaws can opt out of default, but never less than ⅓

• Which shares are considered present?– Shares that are entitled to vote, and are either present (SH is present at

the meeting) or represented (SH gave valid proxy & proxy holder is present at the meeting)

– If a share is present for any issue at the meeting, it counts towards the quorum for the entire meeting

• Example: Joe attends the first 10 minutes of a meeting, voting on issue 1, then leaves to grab lunch and is not present when there’s a vote on issue 2. Joe’s shares are considered present for establishing a quorum for issue 2.


QuorumWho is entitled to vote?

• Hypo: Board sends SHs notice on June 4 that a SH meeting will take place on August 1. Alice owned a share on June 4, but sold it to Bart on June 10, so on August 1, Bart owns the share.– Q: Who gets to vote the share, Alice or Bart?

A: depends on the record date (the date on which the owner is considered entitled to vote & receive notice of an upcoming SH meeting)

• Suppose the rule is that the record date is the time of the vote– Would this rule cause problems to the firm in notifying SHs about an upcoming

SH meeting?– Would such a rule cause problems to someone who is soliciting votes for a

proposal at the SH meeting?



• Suppose the rule is that the record date is the time the meeting is called

• Hypo: Microsoft agrees to merge with Yahoo!, and calls a SH meeting to approve the merger– Microsoft sets May 3rd as the record date (both voting & notice)– Edna owned Microsoft shares until May 5th, when she sold them– She now has no incentive to bother voting, which makes it harder to establish a

quorum and get an absolute majority of SHs to approve the merger (even if most SHs who care about MS favor the merger)

– And if Edna does vote, she might not vote in the best interest of Microsoft (since she no longer has a stake in the company)

• So there are problems with either record date (when meeting is called/when vote is held)



• DGCL §213(a) creates record dates for notice & voting– Owner of a share on record date is entitled to notice

• Record date can’t be earlier than the day of the resolution fixing it• No earlier than 60 days before the meeting, no later than 10 days

– Board may set separate record date for voting• This mitigates the problem of votes by former SHs

• Default record dates– Notice

• Day before notice is given to the SHs; If notice was waived by SHs, record date is day before meeting

– Voting• Same date as notice record date



• Example– Acme will hold its annual SH meeting on May 1– It sends a notice of the meeting (with the proxy materials) to SHs

on March 5 (<60 days but >10 days from meeting date)– If Acme’s board does not decide on a different notice record date,

by default the notice record date is March 4• I.e., anyone owning Acme shares on March 4 is entitled to a notice

– If Acme’s board does not decide on a different voting record date, by default the voting record date is also March 4

• I.e., anyone owning Acme shares on March 4 is entitled to vote• But if the board wants to reduce the problem of voting by former SHs, it

can decide on a later voting record date (e.g., April 15)


Vote

• The ‘vote’ element considers the number of votes that need to support a resolution for it to pass– What vote is required to pass?– How do you count abstentions & withheld votes?


VoteVote required to pass

• Majority of shares present (Default standard: DGCL §216(2))– Bylaw amendments– Precatory SH resolutions

• Majority of disinterested shares present– Ratifying breach of FD (DGCL §144(a)(2))

• Majority of outstanding shares entitled to vote– Mergers (DGCL §251(c))– Sale of all or substantially all of C’s assets (DGCL §271)– Charter amendments (DGCL §242(b))– Dissolving the firm (DGCL §275) (unanimity, if by written consent)

• Plurality of shares present– Electing directors (DGCL §216(3))


VoteVote required to pass: plurality vote

• Plurality: excess of votes cast for one candidate over those cast for any other candidate

• Example 1: more candidates than available seats– One board seat open for election; 3 candidates: Al, Beth & Carol– At SH meeting, Al receives 35% of votes, Beth 40%, Carol 25%– Beth has the plurality of votes (40%), but not a majority (>50%)

• Example 2: single candidate (2012 elections at Sirius XM Radio, Inc.)– Leon Black has been on the board since 2001; re-nominated for 2012– 8 seats open for election; 8 nominees (including Black)– WSJ reports Black didn’t attend any board meeting for several years– SH advisory firms recommend to SHs to vote against him– Of 3.8B outstanding shares, 955M vote against Black, 512M

vote in favor (the rest – about 2.3B (61%) – don’t vote)– Black is reelected (how was there a quorum?)

• Why do we have a plurality standard for electing directors?© Amitai Aviram. All rights reserved.13

Vote: how to count abstentions?Licht v. Storage Technology Corp. [Del. Ch. 2005]

• In a SH meeting of StorageTek, SHs voted on adopting cumulative voting for the election of directors– For the proposal: 42,509,977 ~48.5%– Against: 36,001,925 ~41%– Abstaining: 9,175,421 ~10.5%

• Why did the proxies offer an option of abstaining? [Note FN 7]• A fourth category is votes withheld

– SH who (on a given matter) declines to vote at all


VoteLicht v. Storage Technology Corp.

• Statutory voting standard– MBCA: “approved if the votes… favoring the action exceed the

votes cast opposing the action”• Resolution passes because 48.5% > 41%

– DGCL: “affirmative vote of the majority of shares present...”• If abstentions do not count as “shares present”: 48.5 out of 89.5• If abstentions count as “shares present”: 48.5 out of 100

– Are abstentions considered “shares present”?• New York – “majority of votes cast” standard

– Votes cast include only “for” and “against” votes• Delaware – “majority of voting power present” standard

– Shares present or represented at the meeting; and– Entitled to vote


VoteLicht v. Storage Technology Corp.

• The Licht court cites Berlin v. Emerald Partners (Del. 1989): a vote that was withheld is not considered “voting power present”– Vote withheld = proxy holder not authorized to vote on a certain matter– Proxy holder lacks authority to vote the shares, so share is not entitled to vote

• Licht court: An abstention is a SH’s affirmative authorization to neither vote for nor against– Proxy holder has authorization to abstain– Therefore, an abstention counts as part of the “voting power present”


Special rules for certain votesAmending the charter (voting groups)

• Acme has two classes of shares. Both classes have the same rights, except that Class B shares have a $2/share dividend preference– Acme issues 200 Class A shares & 100 Class B shares

• A year later, Acme’s board brings to a SH vote a proposal to amend the charter to reduce B shares’ dividend preference to $1/share– What vote is required for the proposal to pass?

• Note DGCL §242(b)(2)


Special rules for certain votesCumulative voting: why have it?

• Ringling Brothers Barnum & Bailey circus, a corporation, has 7 directors. Its SHs are:

• Each faction proposes its candidates for the board– If each faction votes for its own candidates, how many directors will each

faction have?– If the Ringling & Ringling-Haley factions form a coalition to elect each other’s

candidates, how many directors will each faction have?– Is it likely that all three factions will be represented on the board?

John Ringling-North 370 shares

Robert Ringling 315 shares

Aubrey Ringling-Haley 315 shares


Special rules for certain votesCumulative voting: how it works

• To allow for more representative boards, corporations may adopt cumulative voting in electing directors [DGCL §214]

• In cumulative voting, each SH’s # of votes is multiplied by the number of directors up for election.– E.g.: Ann owns 2 Class A shares (entitled to 1 vote each) & 1 Class B

share (entitled to 5 votes each)– 3 directors are up for election in the today’s SH meeting– Ann has 21 votes (3 directors x [(2 x 1) + (1 x 5)])

• SHs are then allowed to split their votes on any number of candidates (or use all votes on a single candidate)– E.g.: Ann casts 15 votes for Ben & 6 votes for Cheryl (total: 21 votes)

• The candidates with the most votes are elected


Special rules for certain votesCumulative voting

• Strategy behind cumulative voting– MSHs concentrate all of their votes on one or a small number of

directors, ensuring that those candidates get elected– Controller has to spread his votes over more directors (to elect a

majority of directors), so votes are spread thin, and some candidates lose to MSH’s candidates

• Example: electing Ringling Brothers’ directors– Ringling-North has 2590 votes [370x7]– Ringling & Ringling-Haley each has 2,205 votes [315x7]– Ringling & Ringling-Haley form a coalition– Candidates:

• Edith Robert Dunn Aubrey James John Woods Griffin


Special rules for certain votesCumulative voting: example

• Election results:– Edith Robert Dunn Aubrey James John Woods Griffin– Ringling 882 882 441– R-H 441 882 882– R-N 864 863 863– Total: 882 882 882 882 882 864 863 863

• The Ringling/R-H coalition has 5 directors, R-N faction has 2 directors

• If there were no coalitions, Dunn would only have 441 votes, and Griffin would be elected. R-N: 3 directors, R-H: 2 directors, and R: 2 directors.


Special rules for certain votesStaggered (classified) boards

• U.S. Constitution, Art. I, Sec. 3: Senators are elected for 6-year terms. Every 2 years, ⅓ of Senate seats are open for election.

– Why stagger the elections? (i.e., why not have all 100 seats elected every 6 years?)

• A corporation may have a staggered (classified) board of directors– DGCL §141(d): Firm may provide in charter or bylaws for a staggered board

(composed of 2 or 3 groups)– Additional motivation for staggered boards: takeover defense



1. Mechanics of SH voting2. Proxy solicitation3. Controlling the agenda


Proxy solicitationEffect of SH apathy on voting

• From BA: difficult for beneficiaries to govern when they have -– High cost to act collectively– Unequal access to info/expertise– Differing business interests

• This is the typical situation with SHs in public firms, which is why we need delegated control (firm managed by the board)

• SH voting serves as a check on the board, but it is a form of collective action, so most SHs are likely to be rationally apathetic– E.g., Acme is worth $10B; Joe owns $10,000 of stock (one-millionth of the firm)– Voting for the “right” directors adds $1B to the value of the firm– Joe’s share of the added value is $1,000 – not enough to cover travel & lodging

expenses for the SH meeting• If we want MSHs to vote, we need to make it very inexpensive for

them to do so– How? Voting by proxy: cheaper participation at the cost of lower quality of

deliberation


Proxy solicitationThe proxy card

• SHs can appoint an agent to vote their shares– Agent is called “proxy holder” (or “proxy”)– Document appointing the agent is called “proxy card” (or “proxy”)

Microsoft Corp. Proxy Card - Front


Proxy solicitationThe proxy card

Microsoft Corp. Proxy Card - Back© Amitai Aviram. All rights reserved.26

Proxy solicitationApplication of §14(a)

• Exchange Act §14(a): “It shall be unlawful for any person… in contravention of such rules and regulations as the Commission may prescribe… to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any [registered security]”

• §14(a) relies on SEC rules to provide it with content• Applies only to registered securities• Applies only to solicitations


Proxy solicitationApplication of §14(a) – “solicitation”

• Rule 14a-1(l)(1): “Solicitation” includes– Request for a proxy

• Whether or not accompanied by or included in a form of proxy– Request to execute/not to execute/to revoke a proxy– Furnishing a form of proxy or other communication to security holders

under circumstances reasonably calculated to result in procurement, withholding or revocation of a proxy

• Rules 14a-1(l)(2) & 14a-2 exempt certain activities from the definition of “solicitation” or from some or all of the SEC rules regarding solicitations


Proxy solicitationProxy statement

• Rule 14a-3(a) – Anyone soliciting a proxy must first provide a written proxy statement (following a prescribed form)– Exception (Rule 14a-12) – solicitation may be made before filing proxy statement, if:

• Solicitation identifies the persons soliciting, discloses their interests & advises SHs to read the proxy statement;

• Solicitation is filed with SEC; and• Proxy statement is sent to SHs at same time as proxy card

• Electing directors: Rule 14a-3(b) – Board must provide an annual report before soliciting proxies for the annual meeting– This determines the timing of the annual meeting; end of the firm’s fiscal year +

time to prepare annual report + advance notice for the SH meeting• Filing (Rule 14a-6) – Proxy statement must be filed with SEC

– Preliminary proxy statement: 10+ days before sending• Required unless only issues are electing directors, approving accountant & SH

resolutions, and statement doesn’t comment on an opposing solicitation (Rule 14a-6(a))– Definitive proxy statement: Filed by day it is sent to SHs


Proxy solicitationAdditional §14(a) Rules

• SH proposals: Rule 14a-8 requires, under certain circumstances, that the board include in its own proxy materials proposals that a SH wants to vote on in the SH meeting– We will address this rule when we discuss controlling the SH meeting agenda

• Fraud: Rule 14a-9 prohibits false or misleading statements in connection with soliciting proxies– We will address now how Rule 14a-9 is enforced


Proxy solicitationEnforcement of §14(a)

• Enforcement of §14(a)– Public enforcement: SEC can sue for violations of §14(a) (only needs to show violation)

– Private enforcement: private parties have a cause of action for §14(a) violations (J.I. Case Co. v. Borak [US 1964])

• Suit can be direct (e.g., SH’s voting rights infringed by misrepresentation) or derivative (e.g., corporation harmed by misinformed vote)

• Even when suit is direct, it is usually a class action (MSHs are passive & only harmed a small amount each, so they won’t sue on their own; suit will occur only if you give a lawyer an incentive to sue for many SHs together)

• Elements of a §14(a) action1. Violation

• For Rule 14a-9: Material misleading statement or material omission• Standard for materiality (TSC Industries [US 1976]): Substantial likelihood that a

reasonable shareholder would consider the statement/omission important in deciding how to vote

2. Injury3. Causation (injury caused by violation)


Proxy solicitationElements of §14(a): causation

• Mills v. Electric Auto-Lite Co. [US 1970]– Merganthaler owned 54% of EAL; nominated entire board– EAL’s board approved freezeout merger by Merganthaler– Proxy statement didn’t mention Merganthaler dominated EAL’s board– SH sued to rescind the merger, alleging a misleading omission in the proxy

material, in violation of Rule 14a-9– Issue is proving causation: normally this means showing that plaintiffs relied on

the misrepresentation; but this is impossible to show for thousands of SHs, so if we insist on such proof we rule out class actions

• CA7: to prove causation, show that merger was unfair– If unfair, SHs presumed to have opposed it but for misrepresentation– But if fair, SHs presumed to have approved it anyway

• S.Ct. reverses: CA7 turns the action into an appraisal proceeding– S.Ct. presumes that any material misrepresentation affects the vote– Therefore, causation exists if:

• There was a material misrepresentation; and• The solicited proxies were essential to approve the merger


Proxy solicitationElements of §14(a): causation

• What about a situation where solicited proxies are not essential to approve the merger?

• Virginia Bankshares, Inc. v. Sandberg [US 1991]– VBI owned 85% of a bank & executed freezeout merger– Merger required approval by vote of 2/3 of the SHs– Since VBI owned 85% it didn’t need to solicit proxies, but did– S.Ct.: Even if there was a misleading statement in the proxy materials, plaintiff

can’t show causation because transaction would have been approved even without the proxies



1. Mechanics of SH voting2. Proxy solicitation3. Controlling the agenda


Controlling the agendaThe self-perpetuating board

• Acme’s directors are Larry, Curly & Moe (who each own one of Acme’s 100 shares)

• Carla, who owns 4 shares, disagrees with the way LCM manage Acme & wants to replace them– Carla launches a campaign against LCM,

urging SHs to vote against them– She is successful: All SHs (other than LCM) send

their proxy cards, voting against LCM– Outcome: LCM get 3 votes in favor, 97 votes

against: they are elected because they have aplurality of the votes (DGCL §216(3))

Acme’s directorspose for a picture


Controlling the agendaThe self-perpetuating board

• Suppose Acme has majority voting for directors: LCM election fails– But directors hold office until successor is elected (DGCL §141(b)), so LCM stay– If Curly dies or resigns, who appoints a replacement director? (DGCL §223(1))

• Suppose Carla asks SHs to boycott (not sign the board’s proxy card)– If successful, outcome is no quorum (only 3% of shares represented), so no

new directors elected. Again, LCM stay in office.– Carla needs a valid meeting (w/quorum), in which other candidates are proposed

• Meeting showdown: Carla shows up at SH meeting – Carla persuaded all other SHs (except LCM) to vote against LCM on the board’s

proxy cards; Carla plans to vote her shares for Alvin, Simon & Theodore– To do this, she must first amend the SH meeting agenda to vote on them

• Agency law: proxy holders may use discretionary authority to vote the shares on issues on which they were not instructed how to vote

– At the meeting, Carla moves to amend agenda & vote on electing AST as directors. LCM vote against the amendment their 3 shares + the 93 shares to which they hold proxies. Motion is defeated 96-4.


Controlling the agendaWhat can a SH do?

• To replace the board, it’s not enough to have sufficient SH votes; Carla needs to control the SH meeting agenda

• Proxy contest: solicit from other SHs proxies to vote their shares on the desired issue or for the desired candidate

• Proxy access: ask the board to include the desired issue/candidate on the agenda (and on the board’s proxy card)


Controlling the agendaProxy contest

• Proxy contests are expensive– Example: In May 2009 Pershing Square launched a proxy contest

to appoint its nominees to the board of Target• Estimated cost to Pershing Square: $15M• Each additional mailing to SHs cost $1.6M

(according to Financial Times, May 11, 2009)• Insurgents don’t capture all the value from the contest

– Suppose that a proxy contest cost Carla $15M, and electing AST instead of LCM will increase Acme’s value by $100M

– How much does Carla profit from the change?• But Carla bears the entire $15M cost



• Should the firm be required to reimburse proxy contest costs?– Suppose that Carla’s doesn’t have a better strategy, but she launches a

proxy contest anyway– Suppose also that the proxy contest costs Acme $15M, and Carla

another $15M (if uncontested, cost to Acme is $10M)• If Carla wins, she gets control of Acme (and gets reimbursed)• If she loses, she doesn’t pay anything (expenses are reimbursed), and

Acme might pay her up to $20M to withdraw from the contest, in order to save Acme the costs of the proxy contest ($30M-10M)

– So Carla has an incentive to always contest the board (to extort a side payment), even if she doesn’t have a better strategy



• No affirmative right to be reimbursed contest costs– But firm can authorize a reimbursement, if:

• Contest involved a question of policy, not personnel; and• Expenses are reasonable in amount & reasonably necessary to inform SHs

• Reimbursing insurgents– If insurgents won, same rules as reimbursing incumbents

• Case law suggests SHs need to authorize insurgent reimbursement– If insurgents lost, same rules but board is unlikely to authorize reimbursement,

or bring it to SH vote– DGCL §113: Bylaws may create other reimbursement arrangements

• Why is it significant that §113 authorizes doing this in bylaws?


Controlling the agendaProxy access

• Ask board to include the issue on the agenda (& on proxy card)• Such requests are typically regulated by an advance notice bylaw

– Bylaw specifying how SHs can add issues to the agenda– Such bylaws often restrict which SHs can do so & requires SHs to disclose info

beyond federal securities laws requirements– JANA v. CNet [Del.Ch. 2008]

• Ambiguity in these bylaws is interpreted in favor of SHs’ electoral rights• Void if it unduly restrict SH franchise or applied inequitably

• When is the board forced to include an issue on the proxy card?– Electing directors (proxy access) – limited access

• DGCL §112: Bylaws may contain a proxy access provision, allowing SHs to nominate their candidates for directors on the board’s proxy card, and create certain limitations on this right

– Other SH decisions (SH proposals) – broader access• Why distinguish electing directors from other decisions?


Controlling the agendaSH proposals

• Rule 14a-8: When must board include SH proposal on its proxy?– Qualifying SHs

• Own at least $2K or 1% of shares• Owned shares for at least 1 year & hold the shares through the date of

the SH meeting• Submitted no more than 1 proposal per SH meeting

– SH or her agent must appear at meeting to present proposal– Proposal (including supporting statement) may not exceed 500

words– Firm may write in proxy statement an objection to the SH

proposal


SH proposalsProcedure for exclusion

• Rule 14a-8(i) allows firm to exclude certain proposals• Procedure for exclusion – minimum requirements

– Firm must notify SH of defect within 14 days (unless defect cannot be remedied – e.g., submitting proposal after deadline); SH then has 14 days to respond

– Firm must notify SEC (& copy SH) of intent to exclude a proposal at least 80 days before filing the definitive proxy statement

• Typical practice: When firm notifies SEC, it requests a “no-action letter” in which SEC’s staff states that based on information provided, it doesn’t intend to challenge exclusion– If either side doesn’t like the outcome, they can appeal to the SEC

commissioners– Letter doesn’t prevent SHs from suing in court, nor binds court if SHs sue– So why do firms ask for a no-action letter?– Practice point: when considering whether a proposal is excludable, look not

only at caselaw, but also at prior no-action letters


SH proposalsExample of a no-action letter


SH proposalsRule 14a-8(i): grounds for exclusion

1. Improper under state law2. Violation of state, federal or foreign law3. Violation of proxy rules

– E.g., 14a-8 (compliance w/formalities); 14a-9 (material misrepresentation)4. Personal grievance or personal interest5. Relevance (issue has very minor impact on the firm)6. Absence of power/authority7. Management functions8. Director elections

– Can exclude proposals that affect outcome of a particular director election, but not proposal affecting general election process

9. Conflicts with company’s proposal10. Proposal already substantially implemented11. Duplication with an included proposal12. Resubmissions (Proposal submitted in past & received little support)13. Specific amount of dividends


SH proposals14a-8(i)(1): Improper under state law

• Typically applies when SHs aren’t authorized to make this decision• Hypo 1: SH proposal that: “Yahoo will merge with Microsoft”

– Excludable under 14a-8(i)(1): SHs don’t have authority to order board to do this• Hypo 2 (recommendation): SH proposal that “Shareholders

recommend that Yahoo will merge with Microsoft”.– Not excludable under 14a-8(i)(1), since SHs can recommend. But board is not

obligated to follow the recommendation• Hypo 3 (bylaw): SH proposal that “Shareholders amend the bylaws to

add bylaw 9.87: The board will present every merger proposal it receives to the shareholders, and will execute the merger if shareholders vote in favor of it.”– Excludable under 14a-8(i)(1): SHs have authority to amend bylaws, but is this a

valid bylaw under Boilermakers? Valid subject matter (rights/powers of SHs), but bylaws only dictate process (not substantive decisions) & bylaws may not force directors to violate FDs (e.g., agree to what they think is a bad merger)


SH proposals14a-8(i)(5): Relevance

• Proposal relates to operations which account for <5% of total assets, net earnings & gross sales, and is “not otherwise significantly related to the company’s business”

• Hypo: SH proposes that “SHs request that Acme will investigate whether its supplier Ajax is involved in organized crime”– Suppose that Acme’s purchases from Ajax are far less than 5% of assets,

earnings or sales– Best argument against exclusion under 14a-8(i)(5)?


SH proposals14a-8(i)(6): Absence of authority

• Firm lacks power/authority to implement proposal• Hypo: “SHs recommend that Acme form a committee to report on

the benefits to Acme from a national health-care system”– Recommendation, so likely not excludable under 14a-8(i)(1)– Probably not excludable under 14a-8(i)(5) if Acme’s health plan costs are

significant– 14a-8(i)(6): Acme claims that it has no power to determine whether the US

legislates national health-care• But forming a committee is within the power of Acme, so proposal probably not

excludable


SH proposals14a-8(i)(7): Management functions

• Proposal deals with a matter relating to the firm’s ordinary business operations

• Example (based on Austin v. ConEd)– “SHs recommend that Acme offer employees a more generous retirement plan”– Court finds this excludable under 14a-8(i)(7)

• Example (social/political issues)– “SHs recommend that Acme will add sexual orientation to its non-

discrimination policy”– Acme claims employment policies are part of its ordinary business operations;

SHs claim it’s a social policy issue that goes beyond ordinary business– In 1992, SEC sides with the firm (Cracker Barrel), in 1998 SEC reverses course

and sides with SHs; trend is towards less exclusion of social issue proposals


Controlling the agendaSummary

Proxy contest(multiple proxies)

Proxy access(single proxy)

Proxy access(for electing directors)

SH proposals(anything but electing directors)

State law (Del.) SH can control agenda, but a contest is expensive.By default, board controls reimbursement; bylaws may opt out of default

Default: board controls agenda;bylaws may opt out of default

Default: board controls agenda;Regulated in most firms by an advance notice bylaw

Federal law --- [Perhaps in the future] Mandatory SH access, subject to board’s limited ability to exclude


mergers & acquisitions section 1b: shareholder voting prof. amitai aviram [email protected]...

Documents

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physical meeting

meeting amitai aviram

meeting vote sufficient

entire meeting example

date hour of meeting

place of meeting dgcl